Quest For Energy Ranges From Arctic Oil and Gas To Western Siberian Shale

The Arctic is increasingly the focus of the search for new reserves. How do you balance the diplomatic and business skills among so many competing interests?

Views differ on how, or indeed whether, to develop the Arctic, but the Circumpolar Nations have made clear that developing the region's oil and gas is in their best interests. Arctic states including Russia, the United States, Canada, Denmark (Greenland) and Norway have decided to proceed with oil and gas exploration programmed, inviting industry through exploration licensing rounds to help them test the potential of new hydrocarbon resources to achieve energy security and spark economic development opportunities for their populations. Shell can play a role in unlocking the next wave of exploration opportunities for these nations and believes the  Arctic, which is widely predicted to hold nearly a quarter (22 percent) of the yet-to-be-discovered global oil and gas resources can provide a major component of the looming global demand.

In the arctic we are targeting conventional fields. Our shale oil activity is in Western Siberia. In April 2013, Shell and Gazprom signed a memorandum that sets out the principles of co-operation in offshore projects in the Russian Arctic and in a deep-water offshore project outside of Russia. Separately, Shell and Gazprom Neft signed a general agreement on partnership in exploration and development of liquid-rich shales.

The Arctic has proved difficult to drill before, in the Beaufort and Chukchi Seas. Do Shell and its Russian partners have the equipment and processes ready, to withstand Arctic conditions?

Shell has been researching and exploring in the Arctic for almost 100 years. But the Arctic's great opportunities come with great obligations: to protect the unique environment and its inhabitants, to manage the risks and ensure safe and responsible development. We have learned a great deal about operating in Arctic and sub-Arctic conditions over the past several years and are committed to applying lessons learned where it enhances the safety of our operations.  Carefully managing industry impact on the Arctic environment and its people means industry, regulators and communities must set high standards, and ensure they are met and enforced.

The Sakhalin-2 project involved re-routing pipelines away from the feeding zones of western grey whales. How do you handle environmental responsibilities?

Since its establishment in 1994, Sakhalin Energy, an operating company of Sakhalin-2 in which Shell holds 27.5 percent, has paid close attention to the social programmes in Sakhalin. In 2012, Sakhalin Energy invested over 36 million roubles into various external social programmes in Sakhalin, that include such areas as education, safety, environmental protection and biodiversity, health, arts and culture.

Involvement and development of the Russian content is also a strategic priority for Sakhalin Energy. Contracts with Russian companies exceeded $17 billion to date. Russian companies involved in the Sakhalin-2 project gain substantial experience of international business cooperation, implement innovative technologies and raise their HSSE and service standards that makes them more competitive on the local (Sakhalin Oblast) and global markets.

Besides, the company has regular engagement with representatives of Sakhalin Indigenous Minorities in areas of their traditional living and economic activities. Sakhalin Energy also implements regular ecologic monitoring programmes, like river ecosystem monitoring, monitoring and protection of Gray Whales, bird species monitoring etc. Sakhalin Energy also holds numerous awards for its social performance from Russian federal and local authorities.

Your work with Liquefied Natural Gas requires the use of new tankers. Have you received these yet?

In June 2012, Shell signed a contract with Sovcomflot for the long-term lease of two brand new Ice Class carriers. The two carriers, to be built at the STX Offshore and Shipbuilding yard in Korea, will be equipped with reinforced hulls for operation in sea ice. The first is expected to be commissioned in late 2014, and the second in early 2015.

Shell wants to accelerate the shipment of Liquefied Natural Gas from the island of Sakhalin. How important is this for Russia's plans to diversify the markets for its gas?

We estimate that LNG demand is going to grow by about 5 percent within the next decade — more than half of this growth is expected to come from emerging Asia Pacific and Middle East markets. Russia, through Sakhalin, is well-positioned geographically and is already a major supply sources for Asia-Pacific. It has the potential to grow further and we think that the most cost effective, credible and fastest way to increase Russian LNG in the world markets is the extension of Sakhalin-2, coupled with integrated development of additional Sakhalin resources, namely Sakhalin-3.

Russian gas resources are sufficient to meet domestic, pipeline and LNG opportunities and so could successfully compete with other projects in the pre and post 2020 LNG market windows, given the decisions to implement LNG projects in Russia are taken quickly. Otherwise, Russia runs the risk of being left behind despite its advantages.

We see an increasing appetite for natural gas in Asia, particularly to tackle air quality issues, but also to benefit from its versatility and reliability. According to the Energy Information Administration forecast, gas consumption in Asia-Pacific region will increase from 475.5 billion cubic meters in 2007 up to more than 1 trillion in 2035.

Russia is a challenging market, even for big players in the energy sector. Is it also a market in which smaller companies can find opportunities, and can you give examples of smaller partners?

Russia is a country is of strategic importance for Shell both in upstream and downstream, as it is a major resource holder and growing market for consumer products. We believe that some of our recently announced projects, like partnership with Gazprom Neft in developing Bazhenov suite, lay a solid foundation for our growth in Russia five to seven years from now and beyond. We would welcome further growth based on our existing partnership with major Russian companies like Gazprom and Gazprom Neft.  

As for the smaller partners, like suppliers of goods and services, we definitely cooperate with them in our joint projects, as well, like Salym Petroleum Development. In 2007 Shell created the Russia Sourcing Office to promote the use of Russian enterprises, that were involved in our projects in Russia and in Shell projects worldwide. For example, the Russian drilling company Burintekh after several years of successful work in Salym Petroleum Development got contracts for working at Shell projects in other countries.

Russia - Holland 2013
Russia - Holland 2013
The Moscow Times is releasing its new "Russia - The Netherlands 2013" supplement, dedicated to economic and cultural cooperation between the two nations. The current edition is published in partnership with the Embassy of the Kingdom of the Netherlands.
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